UDAN: From Air Odisha to Captain Gopinath's Air Deccan win bids; why it is a rough flight ahead

New Delhi: Air Odisha Aviation has won the bid to connect the maximum number of unserved airports in India in the first round of bidding for the regional connectivity scheme UDAN. It proposes to connect 14 such airports which do not service even a single flight as of now, starting next month. In all, 43 unserved airports will get on India's air map with this scheme and these include Jaisalmer, Bikaner, Jamshedpur, Jalgaon, Akola, Shimla, Kandla, Puducherry, Bhatinda, Cooch Behar and Bilaspur.

The UDAN scheme offers subsidy for 50 percent of the seats on these routes, exclusive route monopoly for three years and a host of other concessions at the landing airports. In turn, it expects the airlines to cap fares at Rs 2,500 per seat per hour rate on regional flights. Alliance Air CEO C S Subbiah said he expects breakeven on each such ATR-72 flight in a month as 60-70 percent load factor (which denotes percentage of occupied seats) should be enough for the airline to recover costs. Air Odisha CEO Sanjay Arya said will take about three months for his 18-20 seater aircraft to break even on the regional routes.

Representational image. Reuters

After the first round of bidding – airlines had to bid for the viability gap funding or subsidy they need for each route – five airlines qualified. These include Air India subsidiary Alliance Air, Air Odisha, Turbo Megha Airways, Air Deccan and SpiceJet.

So the big boys of aviation not only stayed away from the first round of bidding, they are also waging a battle against a levy on metro flights which is being used to fund such regional connectivity. IndiGo, SpiceJet, GoAir and Jet Airways have gone to court against the levy imposed by the government on each flight taking off from a metro airport, and some of these airlines have yet not paid the sum accrued from this levy. Civil Aviation Secretary R N Choubey said the levy actually works out to just Rs 50 per metro passenger and should not be hard to bear.

Besides the reluctance of the big domestic airlines to mount flights on these routes, among those airlines that have come forward some have a previous history in the industry which is not all praiseworthy. Take for instance Air Odisha, which this piece says, had to suspend operations in June last year because of the arrest of its top official.

Air Deccan is another airline in the fray. Its promoter Captain G R Gopinath was once hailed as a pioneer of low cost aviation in India – remember his Re 1 ticket gimmick? But this kind of pricing bled the airline dry and he was forced to sell it off to Kingfisher’s Vijay Mallya - and we all know what happened to Mallya after this purchase.

These two examples are relevant here because of what has been happening to some other regional players in the aviation business in India recently. Once considered a strong player, Air Costa has suspended flight operations within eight months of another regional airline, Air Pegasus, getting grounded. Both airlines had been facing financial headwinds and aviation regulator DGCA has already de-registered Air Pegasus’ aircraft.

So is regional aviation becoming the forte of airlines which do not really have sound business models? Has the government examined the history of the successful bidders before awarding them routes, some of which could be unviable even after the viability gap funding? Arya of Air Odisha said he is still to lease the six aircraft needed to operate the 50 regional routes the airline has won in the first round of UDAN bidding. Subbiah of Alliance Air said his airline will lease 10 additional brand new ATR aircraft and this order has already been placed.

Allinace will connect Bhatinda or Shimla to Delhi; Air Odisha will launch a Bhubaneshwar-Utkela-Raipur-Jeypore-JHarsaguda-Ranchi-Rourkela route. Agra-Delhi, Ludhiana-Delhi, Cooch Behar-Kolkata will be some of the routes on Air Deccan; Kandla-Mumbai and Porbandar-Mumbai on SpiceJet.

Minister of State for Civil Aviation Jayant Sinha said while announcing the bidders that the total viability gap funding which government will have to provide is Rs 205 crore for creating 1.3 million additional seats on regional routes. He also pointed out that UDAN is the first-of-a-kind scheme anywhere in the world and that a vast resource is being created at minimal cost for connecting remote corners of the country.